Earnings Snapshot Trades Review

This weeks Earnings Snapshots sent Sunday night to subscribers:


Earnings Snapshots for the Week

AutoDesk (ADSK) will report earnings Tuesday after the close, and shares have traded down 3 of the last 4 reports, including an 11.7% fall last report. Shares are forming a bullish flag under its 200 day SMA at $36.85. The $7.83B software Co. trades 31.4X trailing earnings, 2.2 PEG, 3.76X sales and 16.3X cash flow, fairly rich for less than 15% EPS growth going forward. UBS reiterated a Buy with a reduced $42 target on 11-2, and BofA cut to Neutral from Buy on 11-9. November IV is bid higher to 65.5% with December at 49.4%, options pricing in around a 7% move on earnings. On 10-27 more than 5,000 April $40 calls were sold to open, likely part of a buy write position, and on 10-7 the November $32/$27 bullish risk reversal traded 5,000X at $0.23, the calls still in Open Interest. ON 10-24 a block of 5,000 April $36 calls was bought at $2.72 to open.

Trade to Consider: Sell the ADSK November 35/32 Strangle at a $1.40 Credit

Result: Shares Closed $33.50 Friday, Keeping the Full $1.40 Credit

Covidien (COV) is set to report earnings Tuesday before the open and shares have gained each of the last 4 reports on results. Covidien shares are setup with an ascending triangle, $48.50 the breakout point and $45 the breakdown point, but longer term in a channel down pattern with $40 the next lower low. Covidien is a $23.5B leader in medical instruments and trades 11.1X earnings, 1.2 PEG, 2.1X sales and 15.66X cash flow, also yielding 1.89%. Credit Agricole started shares a Buy back in early October, but not much Analyst action recently. Becton Dickinson (BDX) shares were recently hit hard on earnings, a close peer. November IV at 41.7% compares to December at 34.44%. Back on 10-26 there was unusual put action in April $45 puts bought 2,900X at $3.90/$4.

Trade to Consider: Long the COV November/December $45 Calendar Put Spread at $0.75

Result: COV closed Friday $45.61, December Puts Worth $1.55, +100%

NetApp (NTAP) will report earnings Wednesday after the close, and it has been a volatile mover on earnings, last report falling as much as 20% and closing 14% lower. Before last report 4 of the prior 5 were strong moves higher on results, but numbers have been disappointing lately. NTAP shares have been trending higher and could make a run to $46 to test a prior breakdown and just below the 200 day SMA. The $15.55B storage Co. trades 15.2X earnings, 2.86X sales and 13.75X cash flow, a fairly cheap Tech large cap growth play. Piper lowered its target to $53 on 11-7, but sees 3 new product cycles driving a new wave of growth, and easy y/y comps. ISI Group started Buy with $48 target on 10-14. NetApp November IV is extremely high at 81.7% compared to December at 49.1%, and options pricing in a 9% move on earnings. NetApp had been the focus of a lot of bullish risk reversals in recent months with Institutional size, but many have been closed now, but will review the recent trading. On 8-15 the January 46 and 48 calls were bought in size, and still open, on 8-16 7,500 March 35 puts were sold to open, on 8-23 7,000 March 45/30 bull risk reversals traded, a contract that appears to have over 20,000 open now that accumulated in the days following. More recently on 10-27 6,900 November $35 puts were sold and 5,000 January 2013 $40 puts were sold to open, while 5,400 November $42 calls were bought and 2,500 March 2012 $45 calls at $2.46 offer. On 11-7 5,000 November $39 puts were sold to open, and last week there was a slight bearish bias in November options, but longer term NTAP seen as a winner, so a buy on weakness play.

Trade to Consider: Long the NTAP November/December $45/$39 Double Calendar Spread at $1.15 or Better

Result: NTAP moved much more than anticipated, depending on how the trade was manged it is likely a losing trading here.

Aruba Networks (ARUN) will report results Thursday after the close, and is a stock that has traded higher in 7 of the last 8 reports, May being a 17% fall, while last quarter shares jumped more than 22% at a point. Shares have trended higher since early August and held trend support, showing relative strength during weak markets, but recently relative weakness in strong markets. Shares look likely to leave the $23/$25 range this week. Aruba is a $2.5B networking play with its hands in cloud computing, a major growth play, and potential acquisition target. Shares trade at a premium, 30.85X earnings, 1.76 PEG, 6.3X sales and 52X cash flow, also a big 20.65% short float that fuels the large swings on earnings. Brigantine cut shares to Hold from Buy on 11-10, while JMP started Outperform with a $30 target on 11-2. Deutsche Bank started Hold on 11-1 with a $27 target, noted as the leading provider of wireless equipment for campus environments. November IV at 124% and December at 79.7%, options pricing in an 11.5% move on earnings. There is notable open interest in November 26 calls, over 9,000, and 7,600+ in November 24 calls.

Trade to Consider: Long the ARUN November 24/27 Call Spread at $0.95 and Sell the November $20 Puts at $0.55 for $0.40 Net Debit

Result: This trade could have put put on for a net credit as ARUN as down 8% the day into earnings, and did hold $20, also opened near $24 so the calls could have been sold off as well for a nice profit.

Intuit (INTU) reports earnings 11/17 after the close, and shares have gained 5 of the last 7 reports, a strong 12% move higher last report, closing 8.3% higher, but shares have traded lower the past 2 November reports, a potential seasonal factor. Intuit shares are near all time highs with major resistance overhead at $55, major support down at $50. The $16.25B tax software Co. trades 26.75X trailing earnings, 16.4X forward earnings, PEG 2, 4.2X sales and 20.7X cash flow. UBs reiterated a Buy and raised its target to $60 on 11-8. Intuit recently announced a collaboration with AT&T to offer small business easy credit card processing on mobile devices, so it is entering a new growth market. Deutsche Bank raised its target to $68 on 10-31, a very bullish call. November IV at 49.1% compares to December at 35.3% and options pricing in around a 5% move. There is not a lot of notable Open Interest in November options, the November $55 calls traded 589 Friday against OI 2,294 with mostly offer side buys, and another 1,100 were bought on 11-9, also 100 Nov. 52.5/55 call spreads.

Trade to Consider: Sell the INTU November $55/$52.50 Strangle at $3 Credit

Result: INTU Closed $52.04, Buying Back the Puts at $0.45, a Solid $2.55 Kept ont he $3 Credit

Marvell Tech (MRVL) will report earnings 11/17 after the close and has traded higher 8 of the last 9 reports, including max moves of more than 12% the last 3 reports, generally a large mover. MRVL is forming a great looking inverse head and shoulders pattern with $15.70 the key breakout point, and $13 shoulder support. A move above $15.20 would break shares above its 200 day SMA for the first time since February 2011. The $9B chip Co. trades 10.6X earnings, 0.7 PEG, 1.8X book, and 9.6X cash flow. RBC started Outperform with a $21 target on 10-12, and Cowen started Outperform 10-14. November IV at 66.14% compares to December at 45%, options pricing in a 7% move, cheap to historical moves. There has been notable accumulation in November, December and January calls in recent months, a ton of open interest.

Trade to Consider: Long the MRVL January 2012 $15 Calls at $1.05 and Sell the January 2012 $12.50 Puts at $0.35, Net $0.70 Debit

Result: MRVL reported strong and looks poised to move higher, and no reason to exit this one.